Dollar skids on surging yen

The Australian dollar slipped on Thursday as a vicious sell-off in Japanese stocks squeezed investors out of short yen positions, offsetting the impact of resilient local jobs data.

The dollar sank 2 per cent to a five-month trough at 89.14 yen, tripping heavy stop-loss sales on the break of 90.00. There was talk of yet more option-related stops at 89.00.

Shares, commodities and emerging markets have all been hammered by speculation about when the US Federal Reserve might start tapering its asset buying.

"We're approaching a very big event next week with the Fed, and people are reducing risk going into that," said Hamish Pepper, a currency strategist at Barclays Capital in Singapore.

"We're seeing that being expressed in a stronger yen, and that's flowing through the crosses, including kiwi/yen and Aussie/yen."

The dollar has shed as much as 17 yen in just two months as investors unwound massive short positions in the Japanese currency. The market has grown wary of the new Japanese government's ability to implement bold measures to revive a struggling economy.

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All of which left the Aussie at 94.81 US cents in late trade, from an early 94.76 US cents. It briefly jumped a cent to 95.25 US cents after domestic data showed employment beat expectations with a rise of 1100 in May, while the jobless rate dipped to 5.5 per cent.

Bears had been wagering on a much weaker number and had to pare back expectations of a rate cut from the Reserve Bank next month.

"It doesn't necessarily mean the RBA is done but it means less chance for them to go in July," said Andrew Lilley, a rate strategist at UBS.